Uniform Capitalization of Interest Expense in Safe Harbor Sale and Leaseback Transactions, 8729-8730 [05-3463]
Download as PDF
<![CDATA[
Federal Register / Vol. 70, No. 35 / Wednesday, February 23, 2005 / Rules and Regulations
Example 4. Adjustment to net unrealized
built-in gain in case of prior gain recognition.
(i) X, a calendar year C corporation, elects to
become an S corporation effective January 1,
2005. On that date, X’s assets (the first pool
of assets) have a net unrealized built-in gain
of $30,000. Among the assets in the first pool
of assets is all of the outstanding stock of Y,
a C corporation, with a fair market value of
$45,000 and an adjusted basis of $10,000. Y
has no current or accumulated earnings and
profits. On April 1, 2007, Y distributes
$18,000 to X, $8,000 of which is treated as
gain to X from the sale or exchange of
property under section 301(c)(3). That $8,000
is recognized built-in gain to X under section
1374(d)(3), and results in $8,000 of net
recognized built-in gain to X for 2007. X’s net
unrealized built-in gain limitation for 2008 is
$22,000. On June 1, 2009, Y transfers its
assets to X in a liquidation to which sections
332 and 337(a) apply.
(ii) Under paragraph (b) of this section, the
net unrealized built in-gain of the first pool
of assets is adjusted to account for the
elimination of the Y stock in the liquidation.
The net unrealized built-in gain of that pool
of assets, however, can only be adjusted to
reflect the amount of built-in gain that was
inherent in the Y stock on January 1, 2005
that has not resulted in recognized built-in
gain during the recognition period. In this
case, therefore, the net unrealized built-in
gain of the first pool of assets cannot be
reduced by more than $27,000 ($35,000, the
amount by which the fair market value of the
Y stock exceeded its adjusted basis as of
January 1, 2005, minus $8,000, the
recognized built-in gain with respect to the
stock during the recognition period).
Accordingly, for taxable years ending after
June 1, 2009, the net unrealized built-in gain
of the first pool of assets is $3,000. The net
unrealized built-in gain limitation for 2009 is
$0.
Par. 3. Paragraph (a) of § 1.1374–10 is
revised to read as follows:
n
§ 1.1374–10
rules.
Effective date and additional
(a) In general. Sections 1.1374–1
through 1.1374–9, other than § 1.1374–
3(b) and (c) Examples 2 through 4, apply
for taxable years ending on or after
December 27, 1994, but only in cases
where the S corporation’s return for the
taxable year is filed pursuant to an S
election or a section 1374(d)(8)
transaction occurring on or after
December 27, 1994. Section 1.1374–3(b)
and (c) Examples 2 through 4 apply to
section 1374(d)(8) transactions that
occur in taxable years beginning after
February 23, 2005. In addition, an S
corporation may apply § 1.1374–3(b)
and (c) Examples 2 through 4 to section
1374(d)(8) transactions that occur in
taxable years beginning on or before
February 23, 2005, if the S corporation
(and any predecessors or successors)
and all affected shareholders file
original or amended returns that are
consistent with these provisions for
VerDate jul<14>2003
16:23 Feb 22, 2005
Jkt 205001
taxable years of the S corporation during
the recognition period of the pool of
assets the net unrealized built-in gain of
which would be adjusted pursuant to
those provisions that are not closed as
of the first date after February 23, 2005,
that the S corporation files an original
or amended return. For purposes of this
section, affected shareholders means all
shareholders who received distributive
shares of S corporation items in such
taxable years. However, the
Commissioner may, in appropriate
circumstances, permit taxpayers to
apply these provisions even if all
affected shareholders cannot file
consistent returns. In addition, for this
purpose, a predecessor of an S
corporation is a corporation that
transfers its assets to the S corporation
in a transaction to which section 381
applies. A successor of an S corporation
is a corporation to which the S
corporation transfers its assets in a
transaction to which section 381
applies.
*
*
*
*
*
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: February 14, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury.
FR Doc. 05–3462 Filed 2–22–05; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9179]
RIN 1545–BB62
Uniform Capitalization of Interest
Expense in Safe Harbor Sale and
Leaseback Transactions
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
amendments to regulations relating to
the capitalization of interest expense
incurred in sale and leaseback
transactions under the Economic
Recovery Tax Act of 1981 (ERTA) safe
harbor leasing provisions. The
regulations affect taxpayers that provide
purchase money obligations in
connection with these transactions.
DATES: Effective Date: These regulations
are effective February 23, 2005.
Applicability Dates: For dates of
applicability, see § 1.263A–15(a)(3).
PO 00000
Frm 00021
Fmt 4700
Sfmt 4700
8729
FOR FURTHER INFORMATION CONTACT:
Christian Wood, 202–622–4930 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to 26 CFR part 1. On May 20, 2004, the
IRS and Treasury Department published
in the Federal Register a notice of
proposed rulemaking (REG–148399–02;
69 FR 29113) by cross reference to
temporary regulations (TD 9129; 69 FR
29066) under section 263A(f) of the
Internal Revenue Code (Code). These
amendments pertain to the treatment of
certain interest expense incurred by the
lessor in a sale and leaseback
transaction under the ERTA safe harbor
leasing provisions (former section
168(f)(8), as enacted by section 201(a) of
ERTA, Public Law 97–34, 95 Stat. 214).
No comments in response to the
proposed regulations or requests to
speak at a public hearing were received,
and no hearing was held. The proposed
regulations under section 263A(f) are
adopted by this Treasury decision.
Effective Date
These final regulations generally
apply to interest incurred in taxable
years beginning on or after May 20,
2004. In the case of property that is
inventory in the hands of the taxpayer,
these regulations apply to taxable years
beginning on or after May 20, 2004.
Taxpayers may elect to apply these
regulations to interest incurred in
taxable years beginning on or after
January 1, 1995, or, in the case of
property that is inventory in the hands
of the taxpayer, to taxable years
beginning on or after January 1, 1995
(the general effective date of the interest
capitalization regulations).
In addition, for purposes of § 1.263A–
15(a)(2), the exclusion of purchase
money obligations given by the lessor to
the lessee (or a party related to the
lessee) in a sale and leaseback
transaction under former section
168(f)(8) as enacted by ERTA will be
considered to be a reasonable position
for the application of section 263A(f) in
taxable years beginning before January
1, 1995. Consequently, a taxpayer
changing a method of accounting for
property that is not inventory in the
hands of the taxpayer to conform to
these regulations may elect to include
interest incurred after December 31,
1986, in taxable years beginning on or
after December 31, 1986 (the general
effective date of section 263A), and
before January 1, 1995, in the
determination of its adjustment under
section 481(a). A taxpayer changing a
method of accounting for property that
E:\FR\FM\23FER1.SGM
23FER1
8730
Federal Register / Vol. 70, No. 35 / Wednesday, February 23, 2005 / Rules and Regulations
is inventory in the hands of the taxpayer
to conform to these regulations must
compute a section 481(a) adjustment
and revalue its beginning inventory in
the year of change as if the new method
of accounting had been in effect during
all prior years.
§ 1.263A–9T
Special Analyses
It has been determined that these final
regulations are not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and, because the
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking that preceded
these regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
(a) * * *
(3) Section 1.263A–9(a)(4)(ix)
generally applies to interest incurred in
taxable years beginning on or after May
20, 2004. In the case of property that is
inventory in the hands of the taxpayer,
§ 1.263A–9(a)(4)(ix) applies to taxable
years beginning on or after May 20,
2004. Taxpayers may elect to apply
§ 1.263A–9(a)(4)(ix) to interest incurred
in taxable years beginning on or after
January 1, 1995, or, in the case of
property that is inventory in the hands
of the taxpayer, to taxable years
beginning on or after January 1, 1995. A
change in a taxpayer’s treatment of
interest to a method consistent with
§ 1.263A–9(a)(4)(ix) is a change in
method of accounting to which sections
446 and 481 apply.
*
*
*
*
*
Drafting Information
§ 1.263A–15T
The principal authors of these
regulations are Christian Wood and
Grant Anderson of the Office of
Associate Chief Counsel (Income Tax &
Accounting). However, other personnel
from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
[Removed]
Par. 3. Section 1.263A–9T is removed.
n Par. 4. In § 1.263A–15, paragraph (a)(3)
is added to read as follows:
n
§ 1.263A–15 Effective dates, transitional
rules, and anti-abuse rule.
[Removed]
Par. 5. Section 1.263A–15T is
removed.
n
Mark E. Mathews,
Deputy Commissioner for Services and
Enforcement.
Approved: February 15, 2005.
Eric Solomon,
Acting, Deputy Assistant Secretary of the
Treasury (Tax Policy).
[FR Doc. 05–3463 Filed 2–22–05; 8:45 am]
BILLING CODE 4830–01–P
Accordingly, 26 CFR part 1 is amended
as follows:
n
PART 1—INCOME TAXES
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
Paragraph 1. The authority citation for
part 1 continues to read, in part, as
follows:
n
Authority: 26 U.S.C. 7805 * * *
The avoided cost method.
(a) * * *
(4) * * *
(ix) A purchase money obligation
given by the lessor to the lessee (or a
party that is related to the lessee) in a
sale and leaseback transaction involving
an agreement qualifying as a lease under
§ 5c.168(f)(8)-1 through § 5c.168(f)(8)–11
of this chapter. See § 5c.168(f)(8)–1(e)
Example (2) of this chapter.
*
*
*
*
*
VerDate jul<14>2003
16:23 Feb 22, 2005
Jkt 205001
[CGD11–05–009]
Drawbridge Operation Regulations;
Sacramento River, CA
Par. 2. In § 1.263A–9, paragraph
(a)(4)(ix) is added to read as follows:
n
§ 1.263A–9
33 CFR Part 117
AGENCY: Coast Guard, DHS.
ACTION: Notice of temporary deviation
from regulations.
SUMMARY: The Commander, Eleventh
Coast Guard District, has issued a
temporary deviation from the regulation
governing the operation of the I Street
Drawbridge across the Sacramento
River, mile 59.4, at Sacramento, CA.
This deviation allows the bridge to
remain in the closed-to-navigation
position. The deviation is necessary to
PO 00000
Frm 00022
Fmt 4700
Sfmt 4700
repair the operating machinery to
prevent unexpected drawspan failure.
DATES: This deviation is effective from
8 a.m. March 10, 2005, through 5 p.m.
on March 17, 2005.
ADDRESSES: Materials referred to in this
document are available for inspection or
copying at Commander (oan), Eleventh
Coast Guard District, Building 50–3,
Coast Guard Island, Alameda, CA
94501–5100, between 8 a.m. and 4 p.m.,
Monday through Friday, except Federal
holidays. The telephone number is (510)
437–3516.
FOR FURTHER INFORMATION CONTACT:
David Sulouff, Bridge Section, (510)
437–3516.
SUPPLEMENTARY INFORMATION: The Union
Pacific Railroad Company requested to
secure the I Street Drawbridge, mile
59.4, Sacramento River, at Sacramento,
CA, in the closed-to-navigation position
from 8 a.m. March 10, 2005, through 5
p.m. on March 17, 2005, during
essential operating machinery repair, to
prevent unexpected failure of the draw
span. The drawbridge provides 109 ft.
vertical clearance in the full open-tonavigation position, and 30 ft. vertical
clearance above Mean High Water when
closed. The drawbridge normally opens
on signal from approaching vessels, as
required by 33 CFR 117.189.
The proposed work was coordinated
with waterway users. It was determined
that potential navigational impacts will
be reduced if the repairs are performed
during March 2005, resulting in Coast
Guard approval of the proposed work
from 8 a.m. March 10, 2005, through 5
p.m. March 17, 2005.
During these times, the drawspan may
be secured in the closed-to-navigation
position and need not open for vessels.
The drawspan will resume normal
operation at the conclusion of the
essential repair work. Mariners may
contact the I Street Drawbridge by
telephone at (916) 444–8999, in
advance, to determine conditions at the
bridge.
The drawspan will be unable to open
during the repair. Vessels that can safely
pass through the closed drawbridge may
continue to do so at any time.
In accordance with 33 CFR 117.35(c),
this work will be performed with all due
speed to return the drawbridge to
normal operation as soon as possible.
This deviation from the operating
regulations is approved under the
provisions of 33 CFR 117.35.
Dated: February 14, 2005.
Kevin J. Eldridge,
Rear Admiral, U.S. Coast Guard, Commander,
Eleventh Coast Guard District.
[FR Doc. 05–3414 Filed 2–22–05; 8:45 am]
BILLING CODE 4910–15–P
E:\FR\FM\23FER1.SGM
23FER1
]]>Agencies
[Federal Register Volume 70, Number 35 (Wednesday, February 23, 2005)]
[Rules and Regulations]
[Pages 8729-8730]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-3463]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9179]
RIN 1545-BB62
Uniform Capitalization of Interest Expense in Safe Harbor Sale
and Leaseback Transactions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains amendments to regulations relating to
the capitalization of interest expense incurred in sale and leaseback
transactions under the Economic Recovery Tax Act of 1981 (ERTA) safe
harbor leasing provisions. The regulations affect taxpayers that
provide purchase money obligations in connection with these
transactions.
DATES: Effective Date: These regulations are effective February 23,
2005.
Applicability Dates: For dates of applicability, see Sec. 1.263A-
15(a)(3).
FOR FURTHER INFORMATION CONTACT: Christian Wood, 202-622-4930 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to 26 CFR part 1. On May 20,
2004, the IRS and Treasury Department published in the Federal Register
a notice of proposed rulemaking (REG-148399-02; 69 FR 29113) by cross
reference to temporary regulations (TD 9129; 69 FR 29066) under section
263A(f) of the Internal Revenue Code (Code). These amendments pertain
to the treatment of certain interest expense incurred by the lessor in
a sale and leaseback transaction under the ERTA safe harbor leasing
provisions (former section 168(f)(8), as enacted by section 201(a) of
ERTA, Public Law 97-34, 95 Stat. 214). No comments in response to the
proposed regulations or requests to speak at a public hearing were
received, and no hearing was held. The proposed regulations under
section 263A(f) are adopted by this Treasury decision.
Effective Date
These final regulations generally apply to interest incurred in
taxable years beginning on or after May 20, 2004. In the case of
property that is inventory in the hands of the taxpayer, these
regulations apply to taxable years beginning on or after May 20, 2004.
Taxpayers may elect to apply these regulations to interest incurred in
taxable years beginning on or after January 1, 1995, or, in the case of
property that is inventory in the hands of the taxpayer, to taxable
years beginning on or after January 1, 1995 (the general effective date
of the interest capitalization regulations).
In addition, for purposes of Sec. 1.263A-15(a)(2), the exclusion
of purchase money obligations given by the lessor to the lessee (or a
party related to the lessee) in a sale and leaseback transaction under
former section 168(f)(8) as enacted by ERTA will be considered to be a
reasonable position for the application of section 263A(f) in taxable
years beginning before January 1, 1995. Consequently, a taxpayer
changing a method of accounting for property that is not inventory in
the hands of the taxpayer to conform to these regulations may elect to
include interest incurred after December 31, 1986, in taxable years
beginning on or after December 31, 1986 (the general effective date of
section 263A), and before January 1, 1995, in the determination of its
adjustment under section 481(a). A taxpayer changing a method of
accounting for property that
[[Page 8730]]
is inventory in the hands of the taxpayer to conform to these
regulations must compute a section 481(a) adjustment and revalue its
beginning inventory in the year of change as if the new method of
accounting had been in effect during all prior years.
Special Analyses
It has been determined that these final regulations are not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations, and, because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking that preceded these regulations was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Drafting Information
The principal authors of these regulations are Christian Wood and
Grant Anderson of the Office of Associate Chief Counsel (Income Tax &
Accounting). However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. In Sec. 1.263A-9, paragraph (a)(4)(ix) is added to read as
follows:
Sec. 1.263A-9 The avoided cost method.
(a) * * *
(4) * * *
(ix) A purchase money obligation given by the lessor to the lessee
(or a party that is related to the lessee) in a sale and leaseback
transaction involving an agreement qualifying as a lease under Sec.
5c.168(f)(8)-1 through Sec. 5c.168(f)(8)-11 of this chapter. See Sec.
5c.168(f)(8)-1(e) Example (2) of this chapter.
* * * * *
Sec. 1.263A-9T [Removed]
0
Par. 3. Section 1.263A-9T is removed.
0
Par. 4. In Sec. 1.263A-15, paragraph (a)(3) is added to read as
follows:
Sec. 1.263A-15 Effective dates, transitional rules, and anti-abuse
rule.
(a) * * *
(3) Section 1.263A-9(a)(4)(ix) generally applies to interest
incurred in taxable years beginning on or after May 20, 2004. In the
case of property that is inventory in the hands of the taxpayer, Sec.
1.263A-9(a)(4)(ix) applies to taxable years beginning on or after May
20, 2004. Taxpayers may elect to apply Sec. 1.263A-9(a)(4)(ix) to
interest incurred in taxable years beginning on or after January 1,
1995, or, in the case of property that is inventory in the hands of the
taxpayer, to taxable years beginning on or after January 1, 1995. A
change in a taxpayer's treatment of interest to a method consistent
with Sec. 1.263A-9(a)(4)(ix) is a change in method of accounting to
which sections 446 and 481 apply.
* * * * *
Sec. 1.263A-15T [Removed]
0
Par. 5. Section 1.263A-15T is removed.
Mark E. Mathews,
Deputy Commissioner for Services and Enforcement.
Approved: February 15, 2005.
Eric Solomon,
Acting, Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 05-3463 Filed 2-22-05; 8:45 am]
BILLING CODE 4830-01-P
